Here are a few things to consider before entering into a domain name option deal.
I recently completed a sale to a startup after an option agreement.
I gave the company an option to buy the domain name by a set date, with monthly payments during the option period. The option payments went toward the purchase price, and they could exercise the option at any time during the option period.
Here are a few things to consider when doing a deal like this.
Are you getting a lot of inquiries for the domain? The cost to the domain owner of entering into an option agreement is that you have to take the domain off the market for a period of time. I wouldn’t recommend doing this on a domain that gets lots of qualified offers, unless the pot at the end of the option period is substantially higher than the offers you’ve received.
Does the company want to use the domain during the option period? In this case, the company just wanted to have an option while it explored its business idea and sought funding. It didn’t want to use the domain during the option period. This is less risky for the domain owner since a company using the domain can potentially damage it (e.g. bad SEO). I offered lower option payments because the company wasn’t going to use the domain during the option period.
Should option payments count toward the final purchase price? You can negotiate for the option payments to count toward the purchase price, or have some portion count toward the purchase price. Having less than 100% go toward the purchase is an incentive for the buyer to exercise the option sooner. In my case, with a relatively short option period expiring before the end of the calendar year, the option payments counted toward the purchase price. Had it been a longer option period, or if the buyer had asked for an extension, I would have negotiated for only a portion of the payments to go toward the purchase.
You need a contract. You need a contract when you do an option deal like this. The buyer provided one in my case. Zac Muscovitch has done a lot of work with this type of agreement.